Last week, I had the pleasure of attending a small panel discussion between Jason Green (General Partner at Emergence Capital and investor in companies such as DoubleClick, aQuantive, and Ask Jeeves) and Reid Hoffman (Founder of LinkedIn, EVP at Paypal, and angel investor in over 60 startups such as Facebook, IronPort, Flickr, and Digg).

During the panel, the question of market vs team in venture/angel investing came up. Jason was in the “team” camp while Reid was more in “market” camp – but these are very broad generalizations and both emphasized the importance of both in any investment they make. Examples were discussed that give credence to both strategies working and it largely being a personal investing preference. On several occasions, I have heard this debate of market vs team with Sequoia and Kleiner Perkins being used as the poster children for each view point, respectively.

Its a discussion item that I’ve heard on a number of occasions, and I can see the arguments on both sides. While I sometimes hear the scenario being, would you rather invest in a great team in a crappy market or a crappy team in a great market, in general practice, the more realistic scenario for an investor may be, would you rather invest in a A+ team in an A- market or a A- team in a A+ market or a A+ team in an unknown/unclear market or an unproven team in a A+ market. This is where, at least for me personally, I spend more time thinking about.

When the VC funnel is 1 investment out of 100-200 companies/business plans seen, the expectation is that they are choosing from a few companies that have the A+/A- or A+/unknown dynamic – and have already weeded out the B or C teams and markets in the vetting process.

It can be difficult to do a post-mortem on successful or failing companies to try to see a trend because, as the saying goes, success has many fathers (in this case it is both people and market) and failure has none. People often attribute success of a company to the founding/management team (which may or may not be accurate) but the more interesting question is, “before the company was successful and was a startup with 3 guys and powerpoint deck, how did the VCs rate the team.” Also, there are enough examples of what is initially felt to be a great team failing.

I was not personally familiar (so please correct me if I am inaccurate) with some of the larger Southern California successes when they were just being founded but from hearsay, the teams at LowerMyBills and MySpace had trouble raising venture capital very early on yet went on to becoming huge successes and the teams eventually proving themselves to be great founders and operators. While they both raised venture funding later in their lives, it was beyond the very early stage and they had proven themselves on several fronts from an execution perspective.

So, how is this post relevant to entrepreneurs (and not just contributing to the academic exercise of VC discussions)? Here are a couple of points

All VCs want the A+ team and the A+ market. Be realistic with how you grade yourself. Put yourself in the following scenario. If you inherited $5M from a rich uncle and his only criteria is that you had to use all the money to invest in 1 company. Would you pick your own startup/team? Would you pick another team?

If you honestly put yourself in the “not A+ team” (hopefully not a C team but maybe a B+ or in the unknown/unproven camp), the VC will make the same assessment – and more likely, will be much harder graders than you (though he/she may never say this as it can obviously be quite offensive and VCs already have a fragile reputation to maintain – check out this post from Healy Jones, a friend who used to be at Atlas Ventures), make sure you pick an exciting/large/growing/hot market. Then figure out how to enhance your team though recruiting another co-founder or bringing in management/advisors/directors who an fill in gaps and raise your team assessment. You can ask the VC directly to gather some insight into this by asking for “what holes they feel the team would need to fill out”

If you have assembled a strong team and are either still seeking the right market/business or know the current business may not that interesting (you will get this feedback very easily and quickly from the VC because it less offensive), take the opportunity in meetings with VC and others to gather feedback to adjust your plan. While the VC may not have the silver bullet on the exact business you should pursue, we see a lot of companies and trends and can give good insight into how to think about your business from an investor perspective. Hone your plan and use the feedback to make your business stronger.

If you are passionate about your startup but are very self aware and realize that you fall short on both team and market, take it in stride and use your time to find the best startup to join. Network and surround yourself with people with insight into companies that do fit the criteria. Early employees at Google, Ebay, Yahoo, Microsoft, LowerMyBills, MySpace, Facebook, etc aren’t doing too badly : ) . And maybe after some successful experiences at other startups, you will elevate your “team” grade to the point of being “fundable”

Lastly, if you are the A+ team in the A+ market (or at least that is what you are told by several VCs giving you term sheets – congrats…but don’t pat yourself on the back for too long. Plenty of VC funded startups fail for many reasons. Team dynamics/culture, reacting too slowly to changing market conditions, competitors emerging that out-execute, and just plain bad luck. As Reid stated on several occasions, BE PARANOID…and he said when teams he invests in stop being paraoid, that is when he gets really really worried.

Very good article. I certainly get your perspective as a VC but do you see same thing for angel investors as well? Of course all investors want to see A+ team but I am curious whether angels are willing to compromise team over other things such as market, traction, product and etc.

While the topic of career counseling is not the focus of this blog, I get enough requests from people who want to break into the VC industry, I thought it was worthwhile to write a blog entry about it so I can refer people to my viewpoint. There are plenty of articles (Seth Levine has two posts on this topic that are relatively popular – first, second) on the web you can find through a quick search on tips and advice on this subject but I’ll add in my two cents. Just a note – this is specific for early stage tech VC which is my experience (not as relevant for later stage VC/private equity or healthcare VC).

Before diving into some thoughts around how best to break into the industry, I will assume you have done your homework on exactly what being a VC entails and you still want in. I think plenty of people are attracted to VC for various reasons – many of which only scratch the surface of what being a VC is really all about. There is an aura around VC that doesn’t really reflect accurately what it can be like on the inside. Rather than trying to dissuade you or confirm whether you really know what you are getting into, I’ll spend most of this entry with just the practicalities of preparing yourself for trying to break into the industry.

Some quick bits of information to start that will set the stage for this topic

VC is a small industry (and getting smaller). I believe there are on the order of 1000 venture capital firms with less than 10,000 total investment professionals in the entire industry. Just to put this in perspective, Microsoft alone has around 80,000-90,000 employees. Google has 20,000-30,000. Apple has 30,000-40,000.

Most VC firms are relatively small in terms of number of investment professions – 5-10 being the most common. Cultural fit is paramount as its often a small team.

So given this, what are my tips and why?

One question I get quite often from people what want to get into VC, don’t think they have an opportunity immediately, but want to know what job to take that would position them best for VC down the line – should they join a startup or join a larger “brand name” company or go into investment banking or go into consulting. My advice is there is no one perfect career path….but whatever you do, just do it REALLY WELL. To get evidence of this, do your homework. Take a look at the bios of as many VCs as you can on the web (almost everyone has a bio on their website or LinkedIn) and see if you see a trend. From my experience, there really isn’t one. Early stage VC is not like later stage private equity where most people have been investment bankers in the past. Early stage VC backgrounds range widely – entrepreneurs, big tech company experience, consultants, finance and a wide range of functions – engineers, sales, BD, etc. The other point I like to make is that arguably the best VC in the world was a journalist. But the one consistent thing is whatever the background, most did whatever they did really well. So, don’t worry about trying to pick the best “VC prep” field. Pick based on what you LOVE to do and will EXCEL at – this is the best way to get to where you want to go, whether it be VC or not.

Every VC will have a different perspective on types of backgrounds that they prefer – and it will vary based on individual partner’s preferences and needs at the time. Because of the diversity of backgrounds, you’ll get the same diversity in what they each view as important. Personally, I look for startup experience and some kind of general business experience (it could be from a startup if you were in a business role or consulting or large company experience).

Because the VC industry is so small and hiring can be somewhat opportunistic in many instances, luck and timing play a HUGE role. So, how do you prepare to have better luck and timing? Work your ass off, “you create your own luck.” To do this, you need to be in the right places at the right times. The only way to do this is work it. Network like crazy. Get to know VCs and entrepreneurs. Be known….and hopefully, when a position opens up, you may be top of mind because of the luck you created.

Do what you can to get experience early – and not necessarily in a formal role. Internships are a great way to get exposure and experience. Work with very startups in a consulting capacity as a way to get exposure to the fund raising process.

Read and track the newest trends. I (like most early stage tech VC’s) track a number of site regularly in my area of focus. For me, its sites like TechCrunch, VentureBeat, Socaltech, PaidContent, PEHub, etc. Also, a long list of blogs through RSS feeds to Google Reader. Why do this? Well, hopefully you do it because you are already interested in this stuff because you love it. Practically, the way you’ll often break the ice with a VC is by showing you know their industry very well and can show real insight into spaces they are looking.

Again, there are plenty of other important things to consider aside from just the specifics of how to break in. How to prepare your background to be a successful VC. How to know whether you will actually like the work on a day-to-day basis. How to add real value once you are a VC. How to rise to partner once you break in (assuming you don’t enter as a partner).

Ultimately, there is no silver bullet that will be your answer to what you can do to get a job in VC. Its highly individual. It varies widely. It takes a lot of timing and luck….and, if you’ve made it down this far in this blog post and you still want in, its a good sign – perseverance and optimism in the face of tough odds could be your edge.

I was at a Dealmaker Media event the other week and was asked a question about the role of entrepreneurs dealing with partners vs non-partners at venture capital firms. Its a very interesting and relevant question for many entrepreneurs starting out who are unfamiliar with the fund raising process. Since I’ve been in both roles, I think I have a pretty good perspective on this dynamic.

To differentiate the roles, I’ll actually split them into two groups, not based on title, but on their “authority”. From my experience, it really comes down to check-writers and non-check-writers, Hopefully this distinction is fairly self explanatory but really comes down to do they have the authority to decide (obviously with the general agreement of the other partners in the fund) on whether they will fund a startup or not and serve on the board. Rarely do even check-writers decide completely on their own – that’s why they call it a partnership since there is a level of trust, influence, and sharing of responsibility.

Titles, just like in companies, often mean very different things in venture capital firms. With titles ranging from Analyst, Associate, Senior Associate, Vice-President, Principal, Senior Principal, Operating Partner, Associate Partner, Venture Partner, Principal Partner, Partner, General Partner, Managing Partner, Managing Director, etc – it can get confusing very very quickly. Basically, its really hard to tell who is a check-writer vs not. VERY GENERALLY, if forced to bucket them, the breakdown is (not 100% across firms but maybe 90% accurate)

The unfortunate thing (or fortunate depending on your perspective), even VCs (not just entrepreneurs) themselves often can’t tell the different when it comes to another firm unless they are very familiar with that particular firms structure and the individual’s involved. It gets even more complicated because many non-check-writers at firms want to project to the outside world that they can write-checks (trying to boost their credibility and influence in a firm to the entrepreneur) even though they can’t.

Essentially, if you want funding, you need to get to a check-writer (pretty obvious at this point). They will be the one who champion’s your deal in their partnership and can push to get it funded – putting their own reputation on the line with their decision.

The area that is less clear is the role of the non-check-writer. Simple advice – they are valuable and can be your greatest ally or your worst barrier to getting funding, but they are often a necessary and intermediate step to get to the check-writer.

To get into more detail, the non-check-writer (typically an associate) is often the “first line of defense” for a VC firm. They are responsible for screening deals so they at least pass the initial sniff test. Unless you get a trusted referral directly to a partner in a firm, the associate is generally the one who will do the first pass and often take the initial pitch. Often due to bandwidth limitations (or laziness), the partner will just pass deals they receive directly onto their associate anyway. This initial review by the associate is important as they are the gatekeepers to get access to the check-writers. Impress them and they will convince the partner to take a meeting as they often will have the ear of the partner.

In addition to being the gatekeeper, pitching the associate can be extremely valuable to get feedback on how the partnership thinks about investments as they will have a good sense of what excites the partners in the firm. Use this time well to hone your pitch, get feedback, and prepare yourself for the next one. Often, the associate will also have a good read on the personalities and preferences of the partners that can be immensely valuable as well as fund status.

The things you want to watch out for is continuing to meet with the associate over and over again without any sense of moving forward to that partner meeting. This can be a slow and painful death….but, don’t necessarily expect that you should get to that partner meeting after just 1 meeting with the associate. Often, if your pitch isn’t quite ready or there just wasn’t enough information to “let you through the gate” they will ask you for some additional information and another meeting to make sure. This can be a worthwhile exercise as you typically will only get 1 shot with the partner and if you screw up, its over. You’ll just need to read the associate well and/or ask them directly about what additional information they need before a partner meeting might be expected. Be straightforward but realistic about the questions and diligence items that are being requested but generally, if you aren’t getting invited in at least after a 2nd meeting with an associate, better to just cut bait and fish somewhere else – its likely a dead end.

Ultimately, an associate is balancing trying to find a company to “get a deal done” and making sure his filter is tight so he doesn’t waste the partners time. Understand the associate’s motivations, listen carefully to their feedback, and treat them professionally and you’ll maximize your chances of getting through. Treat them poorly and ignore their feedback and you’ve likely just shot yourself in the foot. Remember, VC’s judge teams (not just experience and qualifications but personality) as much or more than the business itself. Leave a bad personal impression with the associate and it will absolutely get passed onto the partner.

Going through fund-raising can be a long and confusing process – even in the smoothest of deals. The associate can be a huge ally to guide you through this so work with them and take advantage – you’ll be better off….but keep your eye on the goal – get to a meeting with the check-writer and convince them as they are the decision makers in the end.

Peter, great post. It is important for people to understand the role that associates play. It is a very important one as they often the first screen as you say. I view the best associate as your “guide” to getting funded in the same way that when you are trying to sell to enterprise customers you usually meet people with “influence” (I) but not “authority” (A) (e.g. check writer) – and your goal is ultimately to get to the person with authority. You always need to make sure that you’re at least meeting either the I or the A. And as I always coach people – just be careful not to spend time with NINAs (no influence, no authority).